The U.S. Treasury Department and the Internal Revenue Service issued proposed regulations (REG-117130-25) addressing the exclusion of certain property sales income from foreign-derived deduction eligible income under Internal Revenue Code Section 250, following statutory amendments enacted by the One, Big, Beautiful Bill Act.
Deconstructing the Treasury and IRS Guidance Under Section 250
According to analysis from Bloomberg Tax, the proposed rules explicitly remove income and gain from the sale or other disposition of intangible property and depreciable, amortizable, or depletable property from deduction eligible income. Meanwhile, sales of inventory and copyrighted articles generally retain their eligible status unless another statutory exclusion applies.
Here is the math on the legislative shift. As detailed by Weil Gotshal & Manges LLP, the One, Big, Beautiful Bill Act lowered the Section 250 deduction from 37.5% to 33.34% of foreign-derived deduction eligible income for taxable years beginning after December 31, 2025. It also introduced Section 250(b)(3)(A)(i)(VII), capturing transactions occurring after June 16, 2025.
The Bottom Line
- Narrowed Eligibility: Gains from dispositions of intangible property under Section 367(d)(4) and depreciable, amortizable, or depletable assets are formally cut out of foreign-derived deduction eligible income.
- Tax Principle Standard: The definition of a “sale or other disposition” now leans heavily on general U.S. federal income tax principles, meaning standard leases and licenses do not trigger the exclusion.
- Copyright Protection: Copyrighted articles under Reg. §1.861-18(c)(3) are preserved as eligible property and are not lumped into the banned intangible property category.
Defining Dispositions Under Federal Tax Principles
But the balance sheet tells a different story regarding transaction structures. The proposed guidance formally follows the framework previously signaled in Notice 2025-78, issued on December 4, 2025. By anchoring the definition of a “sale or other disposition” to general federal income tax principles, the Treasury ensures that deemed sales, structural elections, and Section 367(d) transactions fall squarely into the exclusion bucket.
Crucially, because the broad definition of a “sale” found elsewhere in Section 250 does not apply to this specific exclusion, standard commercial leases and licenses escape the penalty. That distinction matters for software and digital media exporters who routinely structure cross-border transfers as licenses rather than outright sales.
| Property Type | Statutory Treatment | Key Regulatory Reference |
|---|---|---|
| Inventory | Eligible for FDDEI (unless excluded) | I.R.C. § 250 |
| Copyrighted Articles | Eligible (Not classified as intangibles) | Reg. §1.861-18(c)(3) |
| Intangible Property | Excluded from FDDEI | I.R.C. § 367(d)(4) |
| Depreciable/Amortizable Assets | Excluded from FDDEI | REG-117130-25 |
Evaluating the Treatment of Copyrighted Articles
Tax departments across multinational firms spent considerable time analyzing how digital goods would be handled. The text of the proposed regulations provides clarity by confirming that copyrighted articles do not trigger the intangible property exclusion.
According to updates tracked by Law360, the proposed rules incorporate practical examples demonstrating how transfers of digital content are evaluated. If a U.S. corporation transfers exclusive and irrevocable rights in a copyright, that transaction is treated as a sale of the copyright—and thus excluded property sales income—even if the underlying contract uses the terminology of a license.
Conversely, nonexclusive and revocable arrangements sidestep the exclusion barrier, preserving tax-advantaged export treatment for qualifying digital distributors.
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.
